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Wealth as a Determinant of Comparative Advantage

  • José Wynne
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    This paper shows that a country's wealth can be an important determinant of comparative advantage when access to credit differs across sectors of the economy. Wealthier nations exhibit a comparative advantage toward goods produced in sectors facing more severe financial imperfections. These sectors are typically populated by small firms. Empirically this paper documents that these sectors are also labor intensive. Consequently, this theory partially offsets traditional sources of comparative advantage and offers an explanation for Trefler's missing trade mystery and the Leontief paradox. Furthermore, the theory makes the relation between trade and income distribution endogenous.

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/0002828053828626
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    File URL: http://www.aeaweb.org/aer/data/mar05_data_wynne.zip
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    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 95 (2005)
    Issue (Month): 1 (March)
    Pages: 226-254

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    Handle: RePEc:aea:aecrev:v:95:y:2005:i:1:p:226-254
    Note: DOI: 10.1257/0002828053828626
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    1. Piketty, Thomas, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 173-89, April.
    2. Benabou, Roland, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 237-64, April.
    3. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
    4. Beck, Thorsten, 2002. "Financial development and international trade: Is there a link?," Journal of International Economics, Elsevier, vol. 57(1), pages 107-131, June.
    5. Ranjan, Priya, 2001. "Dynamic evolution of income distribution and credit-constrained human capital investment in open economies," Journal of International Economics, Elsevier, vol. 55(2), pages 329-358, December.
    6. Greenwood, J. & Jovanovic, B., 1990. "Financial Development, Growth, And The Distribution Of Income," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9002, University of Western Ontario, The Centre for the Study of International Economic Relations.
    7. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
    8. Aghion, Philippe & Bolton, Patrick, 1997. "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 151-72, April.
    9. Fischer, Ronald D, 1992. "Income Distribution in the Dynamic Two-Factor Trade Model," Economica, London School of Economics and Political Science, vol. 59(234), pages 221-33, May.
    10. Benabou, Roland, 1996. "Heterogeneity, Stratification, and Growth: Macroeconomic Implications of Community Structure and School Finance," American Economic Review, American Economic Association, vol. 86(3), pages 584-609, June.
    11. Bhattacharya, Joydeep, 1998. "Credit Market Imperfections, Income Distribution, and Capital Accumulation," Staff General Research Papers 5105, Iowa State University, Department of Economics.
    12. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
    13. Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    14. Hadar, Josef & Russell, William R., 1971. "Stochastic dominance and diversification," Journal of Economic Theory, Elsevier, vol. 3(3), pages 288-305, September.
    15. Leamer, Edward E, 1980. "The Leontief Paradox, Reconsidered," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 495-503, June.
    16. Kenneth Kletzer and Pranab Bardhan., 1986. "Credit Markets and Patterns of International Trade," Economics Working Papers 8612, University of California at Berkeley.
    17. Boyd, John H. & Smith, Bruce D., 1997. "Capital Market Imperfections, International Credit Markets, and Nonconvergence," Journal of Economic Theory, Elsevier, vol. 73(2), pages 335-364, April.
    18. Banerjee, Abhijit V & Newman, Andrew F, 1994. "Poverty, Incentives, and Development," American Economic Review, American Economic Association, vol. 84(2), pages 211-15, May.
    19. Lloyd-Ellis, Huw & Bernhardt, Dan, 2000. "Enterprise, Inequality and Economic Development," Review of Economic Studies, Wiley Blackwell, vol. 67(1), pages 147-68, January.
    20. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
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